AboutWillard R. Brumbaugh, LUTCF Expertise I have answered many questions regarding 401ks, IRAs and annuities as well as life insurance.
I have been counselling against most Qualified Plans since 1994.
Experience Ranked in the top 5 in retirement catagories at Askme.com most of its last 2 1/2 years. Organizations I belong to:
National Association of Insurance and Financial Advisors-California
Inland Empire Estate Planning Council
Education/Credentials Life Underwriters Training Council Fellow
Question QUESTION: I am 60. I am told I can withdraw funds from my 403(b) plan but only those that came from salary deduction not from what my employer contributed on my behalf. Is that a correct interpretation? Our plan is so bad, read high fees, that I have not contributed to it after an initial couple thousands of dollars. I want to get as much out of this bad plan as I can. It is an ING 403(b) annuity. And I still work for the agency. Thank you.
ANSWER: Dear Lucille,
The first of this year, as far as I understand it, 403(b)s are required to conform to 401(k) rules. After age 59 1/2 both ERISA and the IRC permit transfer of all 401(k) funds into self-directed IRAs. This is only limited by the wording in your employer's Summary Plan Document.
If your employer's SPD does not allow these transfer while still employed by the organization, the SPD can be amended. In light of the stock markets actions over the last 10 years, it is in your employer's best interest to implement this change. Though I am not a lawyer, it seems to me that to resist this change, when many employers have already made these transfers possible, is to invite legal action.
Willard R. Brumbaugh, LUTCF
---------- FOLLOW-UP ----------
QUESTION: Thank you for your prompt and helpful answer.
When I asked about withdrawals coming up on 59 1/2 our HR person referred me to the withdrawal section of the SPD. If I am understanding correctly I can check to see if there has been an amendment or request an amendment. To whom would I make such a request?
Am I to understand from your reply that I could not just withdraw money but would have to roll it over? We actually want to build a shop on land we purchased a few years ago for my husband's business. Where he has been renting is being sold. Thank you for the clarifications.
Sincerely,
Lucille
Answer There are two reasons to the clause "transfer of all 401(k) funds into self-directed IRAs." The first is that this is an instruction to those still employed by the sponsoring employer.
The second applies to anyone leaving an employer. If you were to take a direct withdrawal from the pension plan instead of transferring to an IRA, the employer would be required by Federal law to withhold 20% and send it to the IRS.
By rolling your funds into a "pour-over" IRA, you avoid the 20% withholding. And you will be able to postpone the taxation on the funds not yet needed. Once in the IRA the funds are easier to manage.
Unless you have a good relationship with someone higher in management. the HR person is the one that you would have to go through to see if this amendment has been done, or to recommend that it be done. By discussing this with the HR person, and getting him or her to "own" the idea, giving this person the opportunity to look good, you will increase the possibility that the HR person will pursue getting that amendment into the SPD.
